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Lex

In the UK the train was usually my last and reluctant choice, though the UK performance isn’t too bad, after all, 90% of British trains arrive on time.

In Switzerland the equivalent is 98% of trains.

But that 8% difference !

Considering a trip from Lindenpark, Zug, to Basel?

The journey time by train is one hour and thirty-six minutes. Although this is eighteen minutes longer than the average Zug/Basel journey by car, me and Heidi would always take the train.

Bahnhof/Haltestelle

Datum

Zeit

Gleis

Reise mit

Bemerkungen

Baar Lindenpark

Zug

Mo, 07.12.09

ab 10:17

an 10:19

1

4

S1 22141

S-Bahn Linie 1

Zug

Luzern

ab 10:29

an 10:49

4

6

IR 2325

InterRegio ,

Luzern

Basel SBB

ab 10:54

an 11:53

7

7

IR 2170

InterRegio , R

Check out the risky connection intervals.

There are only 10 minutes between the arrival of the Zug train at 10.19, and the departure of the Luzern connection 10.29.

…and just 5 minutes between the arrival of the 10.49 Luzern train and the departure of the Basel train. Yikes!

But even gaps of 2 0r 3 minutes are comfy to the Swiss. You may not be able to set your watch to the trains in Heidiland anymore, but that’s only because the electronic watches are now more accurate than the traditional spring driven instruments

In the UK this margin would rule out rail travel as an option compared with the car. You would have to build so much safety margin of into the schedule (at least 45 minutes between scheduled arrivals and scheduled departures), that the car would be a better bet.

Provided your journey didn’t include the M25, or the M1, or it was on a Sunday morning before 7 am perhaps…..

“In the UK interest rate cuts since the start of the crisis have delivered the average £103,000 floating rate mortgage holder an annual saving of £4,635.Against that the government estimates the net cost of bailing out the financial system at £10bn or £400 per household.” Lex in the Financial Times today.

There are 26m households in the UK.

But only 11.1m of households have a mortgage and of those, only 55%, or 6 million, are on variable rates.

In other words 100% of households paid £400, but only 23% received savings of £4,635.

Plus all households shared (via pension and other indirect and direct holdings), in the loss of £5bn of dividend income from Royal Bank of Scotland (£3bn dividends in 2007, nil in 2009) and Lloyds (£2bn dividends in 2007, nil in 2009) = £192 per household.

All households via pension other indirect and direct holdings, shared in the loss of billions of market value of the UK quoted bank sector. The £30bn loss of market value of Royal Bank of Scotland alone amounted to £1,150 for every household.

So without really trying I am already up to £1,742 for every household.

Is Lex spinning or being economical with the truth?

Who gains from the gross misrepresentation of the facts?

Follow the money?

Lex, care to calculate what the total reduction in the value of UK bank shares was, divided by households? Who do you think bore that cost? Maybe you need new batteries for your calculator?

Bun rating – Zero, too much smoke and too many mirrors to see if there is a pattie

Lex writes about the proposed Lloyds capital raising – the world’s largest – but misses the opportunity for deserved excoriating criticism on behalf of the poor bloody individuals who are the being plucked and stuffed by the fund managers gifting their savings.

Here is a quote from yesterday’s “HM Treasury – Government Announcement on Banks. Implementation of Financial Stability Measures for Lloyds Banking Group and Royal Bank of Scotland”:

“The remaining risks are better shared with private sector shareholders – for Lloyds, the private sector will provide £15bn of capital and for RBS, the first loss on the remaining £282bn of contingent liabilities has increased to £60bn. “

But the ‘private sector’ in this instance comprises mainly the same taxpayers who will now take on additional Lloyds liabilities via their pension and savings products which will be stuffed by their managers with unwanted bank shares. You can be certain that the individual pension and savings participants will not be asked if they want to support the capital raising, and if they were, it isn’t difficult to imagine the answer.

Why would a rational investor buy new Lloyd’s bank shares? There is no visible or certain investment return. On any criterion the rights issue from Lloyds would normally be considered a high risk investment.

Alexander Justham of the FSA’s markets division has said: “Spreading false or misleading rumours about companies, particularly in volatile or fragile market conditions, can be a very damaging form of market abuse. While we pursue individual cases of rumour-mongering, it is of equal concern to us that market practitioners handle rumours properly and avoid giving credibility to false stories.”

There are a deluge of rumours in the financial press recently concerning the actual size, or existence of a potential Lloyds Group “arrangement fee” to exit from participation in the government’s Asset Protection Scheme. Lloyds Group have made no statement about the possible amout of an arrangement fee, so all comment must surely be rumour?

The FT’s report in today’s main paper states that

‘one person familiar with the government’s stance on the issue said a £1bn fee, which would be in lieu of the support that has already been provided to Lloyds was “definitely the floor”

and later in the same report:

“one person close to the government” described reports that the fee could be as high as £2bn as “understandable”

For some reason though, Lex in the same FT edition, quotes Bloomberg as the source of the rumour that “the Treasury may be eying as much as £2bn”.

As so often, I have been unable to find any substance in the Lex commentary. But since the actual amount, if any, of the ‘arrangement fee’, if there is one, for Lloyds exiting, if it does, the ASP, is acutely material to the market value of Lloyds shares, this is one area where facts, not more speculation by once respected commentators are required.

Bun rating: One person close to the kitchen is reported to have suggested that the bun, if there is one, may contain 1% meat.

The military have learned to exert some control over media reports of their operations by ‘embedding’ journalists into operational units. Embedded journalists are not free to choose where they go and what they see, instead they have to remain with the unit they are embedded into and to the extent that they identify with the culture of the unit they are in, they lose a critical measure of objectivity.

Currently, the crisis of the financial establishment is largely reported in the financial press and financial columns by journalists effectively embedded in the financial establishment. This is exemplified clearly in the extent to which the Lex column has itself, become embedded in the financial establishment. Who benefits from the absence of robust criticism of a rotten system?

Is The Financial Times is an example of a newspaper dependant upon the financial establishment for sources of news. Is the F.T. the new Pravda* ?

Today, Lex writes about the revival of the ‘carry trade’. The borrowing of low-yielding currencies to buy in a higher yielding one. After a rambling account of the current revival Lex concludes without an explanation. But Lex comes close to stumbling on the only rational explanation when he states:

“For the truth is that carry trade opportunities should not exist at all: the whole point of flexible exchange rates is to rebalance things when interest rates get out of whack”

There is only one explanation which fits and that is for one significant investing class, the carry trade is a penalty free trade.

A carry trade by a fund whose managers would keep 20% of any profit but would bear no personal losses if it became loss making.

“But the frightening reality is that bank lending is contracting faster than the Fed is buying assets from the non-bank private sector, as part of its efforts to lower yields and revive failed markets. No matter how much the Fed seems to do, banks are not extending loans. US consumer credit, for example, fell at an annualised 10 per cent in July. Total debt outstanding is where it was a year ago.

Some wonder about the wisdom of attempting to mend the wreckage of a debt bubble with yet more debt. Even so, the economic consequences of shrivelling broad money do not bear thinking about – the long-term growth rate of M2, for example, is normally about 10 per cent per year. So forget about inflation. Goldman Sachs notes that inflation has the highest correlation to broader measures of money supply. Best ask for that pay rise now.”

Is Lex saying deflation is coming? I think so, but how can anyone know?

What I know is that there will be deflation, inflation or something in between, and that we will make heroes of the lucky pundits, economists, or punters who guessed right.

Lex writes today about ‘Executive compensation’. But ‘Executive compensation’ is to income, what Harry Potter is to literature.

Traditionally and in most people’s minds, income is earned from employment to fund current consumption, though some may be deferred (savings).

Anyone fortunate enough to have experienced a steady ascent from average income to say, ten times average income, will have discovered that income has limitations. Each increase results in a diminishing pool of useful spending options. But the main limitation of income is that you have to keep clocking in to get it.

The acquisition of and ownership of capital opens up many more possibilities. Capital is necessary to live comfortably and be free of work. Capital buys status. Capital buys power and influence. Capital buys security.

The open goalpost financial culture has led to a new shadow industry. This industry’s objective is the application of entrepreneurship by employees to find increasingly inventive ways to extract capital from it for their personal use.

Lex suggests that shareholders can vote for change. Lex : ‘it is helpful to establish principles on which shareholders can act, especially on dubious practices like golden parachutes, tax gross-ups, and personal perks’